265 U.S.

365
44 S.Ct. 499
68 L.Ed. 1057

LIBERTY NAT. BANK OF ROANOKE, VA.,

v.
BEAR.
No. 238.
Argued April 25, 1924.
Decided May 26, 1924.

Mr. James D. Johnston, of Roanoke, Va., for petitioner.

Messrs. Harvey B. Apperson, of Salem, Va., and James A. Bear and G. A.
Wingfield, both of Roanoke, Va., for respondent.
Mr. Justice SANFORD delivered the opinion of the Court.

This case, which arises in proceedings in bankruptcy, involves claims by a

judgment creditor to liens upon the real estate of the bankrupts.

On July 20, 1920, the Liberty National Bank recovered a judgment in a

Virginia court against the Roanoke Provision Co., a partnership composed of
the two Beckers, and against the Beckers individually. This judgmentwhich
was duly docketed in the Judgment Lien Book and on which execution was
issuedwas under the laws of Virginia a lien upon the real estate of the
judgment debtors. Code of 1919, 6470.

Thereafter, on August 6, an involuntary petition in bankruptcy was filed in the

Federal District Court against the Company, as a partnership composed of the
two Beckers, alleging that it had committed an act of bankruptcy on August 4
by executing a general assignment for the benefit of creditors, and that it was
insolvent. There was no allegation that the Beckers were individually insolvent
or had committed acts of bankruptcy; and no prayer that they be adjudged
bankrupt individually. They filed a joint answer admitting the allegations of the
petition. On August 20, the Company, as a partnership composed of the two
Beckers, was adjudged bankrupt by the District Judge; but they were not

adjudged bankrupt ad individuals. Thereafter, pursuant to an order of the

referee, the Company and the Beckers filed schedules of their respective assets
and liabilities.
4

In April, 1921more than nine months after the recovery of the judgment
the Beckers filed separate voluntary petitions in bankruptcy; and each was
adjudged bankrupt as an individual. Bear, the trustee in the partnership
proceeding, was appointed trustee of their individual estates.

Thereafter the Bank filed proofs of claim on its judgment against the separate
estates of the Beckers, alleging that it constituted a lien upon their individual
real estate and was entitled to priority as such. The trustee filed objections to
the allowance of these prior claims, on the ground, among others, that by virtue
of the proceedings against the Company he had been vested with title to the
property of the individual partners as well as that of the partnership, as of the
date of the filing of the petition in bankruptcy against the partnership, and that
as the judgment against the individual partners had been recovered within four
months prior to the filing of that petition, it could not, under the provisions of
the Bankruptcy Act (Comp. St. 9585-9656), be enforced as a lien upon their
separate estates. He did not aver, however, that either the Company or the
Beckers were insolvent at the time the judgment was recovered.

The referee, holding that the liens created by the judgment upon the separate
properties of the Beckers had been 'annulled' by the proceedings under the
petition against the partnership, disallowed the claims of the Bank, as secured
claims and allowed them as unsecured claims merely.1 This order of the referee
was reversed by the District Judge, on the ground that as the order of
adjudication had merely adjudged the bankruptcy of the Company, and not the
bankruptcy of the Beckers individually, the lien of the judgment upon their
separate estates had not been 'nullified.' The trustee was thereupon granted an
appeal to the Circuit Court of Appeals. The Bank moved to dismiss this appeal
upon the ground, among others, that the trustee had not alleged, either in his
objections to the allowance of its claims or elsewhere, that the Beckers were
insolvent at the time the judgment was recovered, nor had such insolvency been
proven; and that allegation and proof of their insolvency at the time the lien of
the judgment attached was 'absolutely essential.' The Circuit Court of Appeals
without ruling on this motionreversed the decree of the District Court upon
the ground that the 'adjudication of the partnership was necessarily an
adjudication of the bankruptcy of the individuals composing it, and that * * *
the lien of a judgment obtained within four months of the filing of the petition
against the partnership was lost by the adjudication.' 285 Fed. 703. This
decision was apparently based upon Section 67f of the Bankruptcy Act (Comp.

St. 9651)upon which the trustee had relied at the hearing before the
referee2 although no reference to it is made in the opinion; it being evidently
assumed by the court that under that section a judgment lien obtained within
four months prior to the filing of a petition in bankruptcy is dissolved by the
subsequent adjudication of the bankruptcy of the judgment debtor, without
reference to his solvency or insolvency at the time the lien was obtained.3 This
writ of certiorari was then granted. 261 U. S. 612, 43 Sup. Ct. 434, 67 L. Ed.
826.
7

Upon the question whether the adjudication of the bankruptcy of a partnership

involves an adjudication of the bankruptcy of the individual partners, there
appears to have been a diversity of opinion in the lower federal courts. The
decision in Francis v. McNeal, 228 U. S. 695, 33 Sup. Ct. 701, 57 L. Ed. 1029,
L. R. A. 1915E, 706, upon which the Circuit Court of Appeals chiefly relied,
did not involve a determination of this direct question. And we do not find it
necessary to determine it now; since, even if the adjudication of the bankruptcy
of the Company operated as an adjudication of the bankruptcy of the Beckers
individuallywhich we do not intimatenevertheless, in the absence of either
pleading or proof as to their insolvency when the Bank recovered its judgment,
there is no ground under Section 67f of the Act for annulling the lien thereby
acquired upon their property. 4
This section provides:

'That all levies, judgments, attachments, or other liens, obtained through legal
proceedings against a person who is insolvent, at any time within four months
prior to the filing of a petition in bankruptcy against him, shall be deemed null
and void in case he is adjudged a bankrupt, and the property affected by the
levy, judgment, attachment, or other lien shall be deemed wholly discharged
and released from the same, and shall pass to the trustee as a part of the estate
of the bankrupt. * * *'

It applies only to liens obtained in legal proceedings against a person who was
'insolvent' when the lien was acquired. If the debtor was then solvent the lien is
not invalidated although it was obtained within four months prior to the filing
of the petition in bankruptcy. Taubel-Scott-Kitzmiller Co. v. Fox, 264 U. S.
426, 44 Sup. Ct. 396, 68 L. Ed. . To invalidate the lien the person
challenging it must show that the debtor was insolvent when it was obtained.
Stone-Ordean-Wells Co. v. Mark, 227 Fed. 975, 978, 142 C. C. A. 433; Martin
v. Oliver, 260 Fed. 89, 93, 171 C. C. A. 125; Simpson v. Van Etten (C. C.) 108
Fed. 199, 201; Keystone Brew'g Co. v. Schermer, 241 Pa. 361, 365, 88 Atl.
657; Jackson v. Valley Tie Co., 108 Va. 714, 718, 62 S. E. 964; Newberry Shoe

Co. v. Collier, 111 Va. 288, 290, 68 S. E. 974; Severin v. Robinson, 27 Ind.
App. 55, 61, 60 N. E. 966. And see In re Richards, 96 Fed. 935, 37 C. C. A.
634; In re Chappell (D. C.) 113 Fed. 545; In re Community Stores (D. C.) 282
Fed. 328. Such insolvency must be both alleged and proved. Stone-OrdeanWells Co. v. Mark, supra, page 978.
10

In the present case the trustee neither alleged the insolvency of the Beckers at
the time the judgment was recovered and became a lien on their properties, nor
proved such insolvency. If the admission in their joint answer to the petition
filed against the partnership that the Company was insolvent, was intended as
an admission of their individual insolvency, it was, at the most, an admission of
such insolvency on August 6, when the petition in bankruptcy was filed5 a
very different thing from insolvency at the time the judgment was recovered
and, in any event, would not have been binding on the Bank, which was not
then a party to the bankruptcy proceeding. So, if the adjudication of the
partnership as a bankrupt can be regarded as adjudging the insolvency of the
individual partners at the date the petition in bankruptcy was filedwhich we
do not determinesuch an adjudication, for like reason, would not be binding
upon the Bank. Gratiot State Bank v. Johnson, 249 U. S. 246, 39 Sup. Ct. 263,
63 L. Ed. 587. And, generally, an adjudication in bankruptcy in no way
determines whether or not the debtor was insolvent at the time a lien was
obtained through legal proceedings against him; there being no presumption
arising from the adjudication that he was insolvent for any period before the
petition in bankruptcy was filed. Keystone Brew'g Co. v. Schermer, supra, page
365, 88 Atl. 657; Jackson v. Valley Tie Co., supra, page 719, 62 S. E. 964;
Newberry Shoe Co. v. Collier, supra, page 291, 68 S. E. 974. Nor does the fact
that the sales of the partnership and individual properties made some months
later by the trustee did not realize enough to pay either the debts of the
partnership or the debts of the individual partners, respectively, establish the
insolvency of the partners at the time the lien was obtained.

11

There being neither allegation nor proof by the trustee of the insolvency of the
Beckers when the Bank recovered its judgment and fastened its liens upon their
real estate, the decree of the Circuit Court of Appeals is reversed and the cause
remanded to the District Court for further proceedings not inconsistent with this
opinion.

12

Reversed and remanded.

The referee at the same time disallowed another claim of the Bank to a lien

upon the real estate of the partnership; but no steps were taken by the Bank to
review his order in this respect.
2

This appears from a statement in the opinion of the referee.

The Court said: 'The insolvency of the partnership at the date of the judgment
seems to have been assumed in the court below. At any rate, no issue of
solvency or insolvency at the date of the judgment appears to have been made.
We express no opinion as to the existence of such insolvency or its effect.' Page
706.

There is neither averment nor proof bringing the case within section 67c or any
other provision of the act relating to the annulment of prior liens.

The act of bankruptcy alleged, namely, the making of a general assignment on

August 4, did not involve a question of the insolvency of the partnership at that
date; the making of a general assignment being an act of bankruptcy without
reference to the solvency or insolvency of the debtor. Bankruptcy Act, 3a(4).